Evolution of Income Mobility in the People’s Republic of China: 1991-2002

Abstract

Annual income data may provide a misleading indicator of enduring income inequality in societies where there is considerable year-to-year income mobility. Using two rounds of data on households, the paper measures income mobility in the People’s Republic of China (PRC) between the early 1990s and early 2000s. In the early 1990s, the increase in income inequality in the PRC was accompanied by a level of income mobility comparable to other developing countries in transition, and was higher than that found in developed countries such as the United States. By the early 2000s, however, while the PRC’s income inequality increased further, income mobility decreased, implying that the probability of being stuck in a relatively lower level of income increased for households. The paper also finds divergent experiences of urban and rural households as the urban–rural gap widens. In the early 1990s, income mobility was higher among urban than rural households. Between the early 1990s and early 2000s, income mobility decreased for both urban and rural households, but the decrease was more pronounced for the former; therefore, in the early 2000s, urban and rural households had more or less the same level of income mobility. These findings are found to be robust to alternative ways of defining household income groups and analyzing income mobility.